S&P "Incorrectly Analyzed" Almost 2,000 RMBS Issues; More Originator Comp Convo; The Value of 2nd Liens; Co-op Share Loans

"The Center for Science in the Public Interest files a lawsuit claiming McDonald's toys entice children to make unhealthy food choices."

I'm stunned. And how about this one: "Standard & Poor's said it may downgrade 1,196 securities tied to U.S. residential mortgages after it 'incorrectly analyzed' the debt in light of the securitizations' actual structures. The bonds were created mostly this year in 129 transactions called re-remics, which are formed by repackaging existing home-loan securities, New York-based S&P said today in a statement." FULL STORY

It's hard not to be cynical - there are many in the industry, especially overseas, that blame the rating agencies for mis-rating many mortgage securities originally, thus leading to hesitation in future non-agency MBS purchasing.

And this one: "40% of consumers accept the first loan offered." As one vet wrote, "Gee - no borrower has time to get the stupid new GFE form and go around to 6 other lenders and compare all the forms and make a choice.  Who would have guessed? Now the industry and the consumer are stuck with a form that is not only stupid, it is not used as intended. I wonder how long it will take Washington to figure out it screwed up again."

Basel III takes effect in 2018. But there is fear that investors will judge banks now on regulations that don't happen for 8 years. It is a very interesting and real concern. FULL STORY

It is time for all of us to learn a new acronym. We've become somewhat familiar with the CFPB (Consumer Finance Protection Bureau, I think), and now big banks will learn to love the CFI. The FDIC announced the appointment of Jim Wigand as the Director of the newly established Office of Complex Financial Institutions (CFI). "The CFI is responsible for the continuous review and oversight of bank holding companies with more than $100 billion in assets as well as non-bank financial companies designated as systemically important by the new Financial Stability Oversight Council (FSOC). CFI will also be responsible for carrying out the FDIC's joint responsibility with the Federal Reserve Board to require, review, and approve resolution plans for large bank and nonbank institutions. Finally, and most importantly, the CFI will be charged with implementing the FDIC's new authority for the orderly liquidations of bank holding companies and non-bank financial companies that fail."

Any lender involved with the Community Reinvestment Act (CRA) should know that the FDIC issued changes to CRA regulations to support stabilization of communities affected by high foreclosure levels. The final rule is substantially the same as the proposal that came out in June, encouraging "depository institutions to support eligible development activities in areas designated under the Neighborhood Stabilization Program (NSP) administered by the U.S. Department of Housing and Urban Development (HUD)."

Fannie spread the word that any lender doing "share co-op" loans has some new documentation with which to deal. "Fannie Mae published state-specific documentation requirements for all states in which Fannie Mae purchases co-op share loans. These requirements describe documents that must be delivered to the document custodian and documents that the lender must retain in the individual loan file. The requirements have been updated for Connecticut and three additional states have been added -- Alaska, Indiana and Washington." The 29 page document can be found HERE

Yesterday I noted a question, "If I charge the borrower an origination fee of (let's say) 1.5% of the loan amount, can that fee (along with all other broker and lender fees, title charges, and pre-paids) be paid, in whole or in part, with a YSP provided by the lender based on the interest rate?" I received a fair number of responses. "I believe that is correct, but my understanding is that the issue will be if the loan agents charges one borrower 1.5% of the loan amount (whether rebate or discount) then he must charge ALL borrowers 1.5%, regardless of loan amount or loan type.   That is a huge issue and will impact all broker and banker originators in our ability to be competitive for the specific borrower we are quoting.  The fact is, most of us quote a 700K conventional loan different from a 100K FHA loan.  As of April 1st, this will be no more."

Another wrote, "The answer to the LO question is 'no.' The broker can't charge the borrower excessive closing cost, non-bonafide discount/origination, and be paid by the lender.  In a transaction where the lender is paying the broker, all premium pricing must go to the borrower's closing cost.  A separated negotiated fee is paid to the broker by the lender."

"If a cardiologist can have a set fee for a bypass, an attorney a set hourly rate, and a CPA a flat fee for a tax return, then I can live with a set fee for doing a loan."

"In an option presented by SunTrust, 'Lender Paid,' is based on pricing negotiated between the broker and the lender. The negotiated payment will be used for all loans sent to STM and will be set-up prior to registering loans. When a loan is registered using the "Lender Paid" option, the negotiated fees will be added to the prices displayed for the product selected. The system will test to ensure compensation meets both the price caps and compensation floor. When "lender paid" compensation is selected, you may not receive compensation or fees from the borrower. At this time, we anticipate your negotiated compensation to be renewed or restructured quarterly."

360 Mortgage Group, out of Austin, TX, announced "the new FRB rule creates transparency for the educated borrower to fairly compare the true characteristic of a loan regardless of whether the loan is being made by a mortgage broker or a mortgage banker. This rule will not have a negative impact on a broker's ability to earn the same income as they have since the latest RESPA change. Brokers have been able to charge origination fees and give YSP in the form of a credit to borrowers. That is not going to change. The rule simply extends the RESPA changes beyond the broker world into the banker world, and will now require bankers to play by the same rules as brokers." "In fact, the RESPA change that went into effect on January 1 of this year effectively changed the disclosure of YSP from being paid directly to the broker. Since January, all YSP has been given to borrowers in the form of borrower credits which the broker has the ability to capture. The FRB Rule simply states that the loan originator cannot be compensated based on the rate or the terms of the note; however, borrower credits may be based on these two aspects of the loan." READ MORE

"In the 8 years I have been here, I have never changed a fee that would be considered unethical or would be in contrast to my integrity.  Many times I have lowered fees at my cost to ensure that I did not do things that would be considered unethical.  The people that were breaking all of these rules and doing things incorrectly have left this business.  Passing these types of rules is just making good people leave the business."

Recently Kate Berry of American Banker raised an interesting question: "If a home is underwater but the borrower keeps paying the second mortgage (though maybe not the first), can that junior lien be worth anywhere near face value?" If the answer is 'yes,' as banks have indicated in their valuations, government attempts to help distressed borrowers may be destined to flounder as second liens continue to stymie loan modifications and short sales. If the answer is 'no' - as many critics contend - and banks were forced to acknowledge it by writing down more of their second liens, their capital could take a serious hit." Something else for us to worry about!

On Wednesday it was "another day, another sell-off" and borrowers and originators who didn't lock weeks fear that rates won't go that low again. And originators and companies who base their business on refinances are especially, suddenly bothered. Rate sheet MBS prices (mortgage securities that would include retail rates near par) finished Wednesday worse by about .75 in price. They didn't start off there, as evidenced by the number of price changes throughout the late morning and afternoon. Once the 10-yr Treasury moved above 3.40%, traders and investors became nervous and selling begat selling.

There was more than twice the volume of MBS selling, but as one trader reminded us, "Who wants to catch the falling knife?" Another trader from Merrill Lynch opined, "Expect mortgages to go out near the wides today as the street pounds them until a buyer emerges. It doesn't appear likely the fireworks in the rates/MBS market are going to subside anytime soon." A third opined, "5.25% mortgage rates will kill supply and banks should be looking at ways to make up that lost income."

Today's joke seems to apply pretty well to the current sentiment of the mortgage industry...